Bulls Try To Take It Up A Notch

The financial markets have done a good job of forecasting the slow improvements
we have seen in the economic numbers in recent weeks. Even though the economy
remains weak, we cannot ignore the steady stream of incremental improvements
in the economic data. For example leading economic indicators (LEIs) have increased
for three consecutive months. In the June report from the Conference Board,
seven of the ten LEI components showed positive improvement. Since the lows
in March of 2009, LEIs have risen 3.1%. As we touch on below, the markets are
reflecting the economy's gradual move off the deck and away from the financial
Armageddon scenario. Based on the information at hand, we currently have positive
alignment of the fundamentals (they are improving) and the technicals, which
results in a more favorable risk-reward climate. The concept of fundamental
and technical alignment is covered in more detail in this August
2008 article.

As globalization continues to flatten the world, markets seem to be taking
cues from each other on an ever increasing scale. Ultimately, it all comes
down to alternating periods between acceptance of risk and risk aversion. Consequently,
when markets reach potential forks in the road, the outcomes tend to all go
the same way - either risk wins or risk aversion wins. Numerous markets and
assets classes are at possible forks in the road. Many of the setups paint
a potentially bullish picture (in some cases very bullish). However, it is
possible risk aversion could win out over acceptance of risk. Our job is not
to forecast but to observe with an open mind. Below we present a few charts
which are currently at forks in the road. Like the charts below, most markets
seem to be leaning toward the bullish fork, but breakouts and bullish setups
often fail. Bullish outcomes would make us more likely to invest additional
capital. Bearish outcomes will cause us to remain patient for now. We should
have some answers very soon.

Chinese stocks have provided leadership for all risk assets as markets attempt
to complete the transition from a bear market to a bull market. This week's
new high in Chinese stocks, if it holds, could indicate that risk assets are
ready for another leg higher. If the breakout fails, it would be a negative
for all risk assets in the shorter-term. We should know in the outcome in a
few days. All charts are weekly.

Chris Ciovacco is the Chief Investment Officer for Ciovacco
Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable
but we cannot attest to its accuracy. Investment recommendations may change
and readers are urged to check with their investment counselors and tax advisors
before making any investment decisions. Opinions expressed in these reports
may change without prior notice. This memorandum is based on information available
to the public. No representation is made that it is accurate or complete. This
memorandum is not an offer to buy or sell or a solicitation of an offer to
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Ciovacco Capital Management, LLC is an independent money
management firm based in Atlanta, Georgia. CCM helps individual investors and
businesses, large & small; achieve improved investment results via research
and globally diversified investment portfolios. Since we are a fee-based firm,
our only objective is to help you protect and grow your assets. Our long-term,
theme-oriented, buy-and-hold approach allows for portfolio rebalancing from
time to time to adjust to new opportunities or changing market conditions.